Read between the headlines
October 25, 2007
This was a week of extremes in financial markets that tells us a little bit about where excess capital is flowing these days and what we can likely expect in the next decade.
From New York the headline reads: "8bn blow for Merrill Lynch Sparks News Fears in the U.S." From London: “Wary Investors Desert London IPOs." And these were topped off by “Beware of the Aftershocks IMF Chief Warns."
Collectively the news would have global investors sprinting for the exits. They did at different times during the week on Wall Street and the City of London where many wanted to know if they are able to feel the ground below their feet (meaning if the bottom of the market is near.)
A colleague from Geneva wanted my insights into whether the London property market would finally crack under the weight of the sub-prime mortgage crisis. My answer: demographic demand remains strong, but who really knows what is to come next if both the head of International Monetary Fund and the governor of the Bank of England both warn the worst is not over.
Travel the same distance from London-New York but make it London-Dubai and there is a different set of headlines, with a markedly more upbeat tempo.
Try this: "IPO Floodgates Open" or "DP World to Silence Critics with Dubai IPO." While America’s venerable banking names, Merrill Lynch and Bank of America, doled out losses and job cuts, two of the Middle East’s emerging companies rolled out their plans for initial public offerings.
DP World, the port and logistics company embroiled in the U.S. security debate last year, unveiled its blueprint for a $4 billion dollar listing. In the same week, Abraaj Capital, a private equity house founded by a Pakistani national who oversees $4 billion dollars under management outlined a $1 billion dollar IPO. In an unusual twist (and possibly in part for political reasons to support the Emirate) they both said they plan to list only in Dubai, instead of opting for a dual listing with New York, London or Hong Kong as a partner.
There are two ways to read between the headlines. There is some $3 trillion dollars of liquidity in the Middle East these days, so why fight against the tide of negativity on both sides of the Atlantic when you know regional investors understand your objectives?
A more cynical view shared by a very wealthy business leader from their neighbourhood: both want to secure IPO funding before the good times end. Oil prices don’t appear poised for a downturn in the near future if one follows the International Energy Agency’s forecast, so capital is not a problem. But as many of you know (and what we are witnessing in both London and New York) confidence is based on a number of unknowns, such as the true exposure of banks to highly leveraged loans.
The answer between the headlines probably is a combination of both. List while ‘the going is good’ and pray that what has many sitting at the edge of their desks in London and New York does not find its way to the Gulf.
ABOUT THIS BLOGJohn Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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